JD Health Earnings: Cutting Fair Value by 7% on Macro Concerns, but Margin and Growth Remain Intact

We lower our fair value estimate for JD Health to HKD 60 from HKD 64 after it reported first-half 2023 revenue of CNY 27.11 billion, a 34% increase year on year but 3% lower than Refinitiv consensus. The company lowered its revenue growth guidance to 15% from 30% for 2023, which implies that second-half revenue growth should be flat year on year. JD Health had indicated in a May analyst call that second-half revenue was expected to slow down as a result of a higher base and softer demand, but we believe the new guidance was lower than expectations. JD Health cited macro concerns and lower demand after the pandemic for the reduced guidance. Categories unrelated to the pandemic are still positioned to grow about 30% year on year—but pandemic-related items such as masks, cold medicine, and cleansing supplies could see a 60%-70% decline in sales year on year due to lower demand as quarantine measures are relaxed.